Why the iPhone Forced Steve Jobs to Play (Somewhat) Nice

After liveblogging the iPhone 3G unveiling, PM's guest Apple geek unearths the new landscape for the turtlenecked titan that Silicon Valley loves to hate. Did Apple back down to the mobile market with its new $200 device? Or was Jobs always waiting for the day when he'd deem the iPhone good enough for everyone else?

SAN FRANCISCO -- Almost one year to the day since Apple put its breakthrough iPhone into the hands of fanboys across the United States, CEO Steve Jobs appeared to do something very surprising here. It was something that the company's fearless (and notoriously headstrong) leader almost never does: He made lots and lots of compromises.

The sleek, black device introduced at the Moscone Center this morning has been dubbed iPhone 3G, after the high-speed data connection it (finally) offers. And the second-generation iPhone reverses almost everything that made the original a fetish item for the rich, famous and geeky worldwide:

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* The first iPhone was $600, and was only available in the U.S. through AT&T. The second iPhone is $199, and will be available in 22 countries at launch, with another 48 already slated to carry it in the months to follow.

* The first iPhone ran only the applications that Apple said it could. The new one is wide open to developers of every stripe, from part-time solo operations to major multinational software operations.

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* The first iPhone didn't work well with enterprise operations, or offer push e-mail to equal BlackBerry or Palm. The new iPhone software uses licensed Microsoft technology to provide a robust, Fortune-500-ready-enterprise smartphone with push for everyone.

* The first iPhone was for a few million Mac and phone freaks. You'll see this one in the hands of many more millions of teenagers, parents and executives around the world within days of its launch on July 11.

What could prompt a leader as detail- and control-oriented as Jobs to affect such a remarkable change? There are really just two possibilities. The first is that the original iPhone was too niche-oriented, because it did everything Apple's way. Sales weren't fast enough to meet expectations at such a high price point, the data connection wasn't fast enough with the EDGE network, and users couldn't fully replace an enterprise-equipped BlackBerry or Treo. In other words, Apple got smacked down by the market, then realized that it needed to change in order to thrive. The second possibility is that Jobs always knew the first-gen iPhone would be a niche device thanks to its slow data speeds, which can be a particular problem in the global market. As such, he pumped the price up and made it an exclusive item--all the while pushing his software and hardware geeks toward today, when demand is certainly high enough for a cheaper and more capable device.

Both the market responsiveness theory and the technological road map hold some water. It seems clear, from talking with insiders and looking through my magnifying glass over at the Cult of Mac, that Apple never intended to sell the iPhone at a price this low. Background rumors have swirled for years that Apple was uncomfortable with carriers subsidizing the cost of its handset. It was said that Jobs didn't like the idea of devaluing the most amazing device he had ever created to a price below an iPod.

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Today's announcement, however, is a clear signal that he has recognized that this luxury-brand strategy won't make the iPhone a major success in the vast mobile market. Disappointing sales overseas highlighted the need to drop the price, so Apple did it. In every way, this decision resembles the big compromises Apple had to make in offering movies on iTunes. Jobs bashed the idea of rental movie content until he and his team realized that no studios would sign up until they could offer rental-exclusive films. The same thing happened with the iPhones, only with consumers and corporate users offering the reality check: They wouldn't scoop up the iPhone en masse until it had a low price, so Apple changed its model.

Other decisions showcased today, however, signal that Apple had many of today's moves planned far in advance. Third-party application support was always going to come--it was just a matter of when. Enterprise support was always a clear target. By delaying head-to-head competition with RIM's BlackBerry product line, Apple moved relatively under the radar until it had a solution that beat anything else on the market. Similarly, GPS and 3G would have killed the battery life on the first iPhone. New chips are less energy intensive--and cheaper--making now the perfect time to introduce them. Apple consciously held back features to improve first-generation stability and drive interest in future models.

For further evidence that Jobs and co. haven't changed their stripes, consider which oft-requested and rumor-mongered features didn't actually end up in the new product. If Apple had truly become a listening company that responded to all reasonable requests from users, these features would not be missing. Again, all of these--save shooting video--are issues of software, not hardware. Any of them could have come pre-loaded in the first-gen iPhone, but they won't even make the second one:

1. MMS: It's still impossible to send photos taken on your iPhone to non-iPhone users without attaching them to an e-mail.

2. Cut, copy and paste: You literally cannot move text and pictures freely from one application to another, despite upgrades in iPhone 2.0 to programs like Microsoft Office and PowerPoint.

All of this functionality comes completely standard on other smartphones--and plain old cellphones--so there's simply no reason that Apple should leave them out. People really do want them, and Apple is the only company that can deliver these features on iPhone, no matter how open third-party development becomes. As always, if Steve Jobs wants a feature, it gets built immediately. If anyone else does? It's not getting in there without a major fight.

And maybe that's the real lesson from this morning's keynote: No matter how much it appears to change, Apple is still Apple. The company works in its own style, and doesn't worry too much about its competitors. If you want absolute control over every aspect of your cellphone, you're never quite going to get it from Apple. If you want to experience the best that mobile computing has to offer, you'll have to learn to live with Apple's quirks. There's just no middle ground between the beauty of the iPhone and the clunkiness of Windows Mobile and BlackBerry OS. There's the mediocre way, Steve's way or the highway. Whose side are you on?